Is CSR Consistent with the Economic Model of the Firm?

Abstract

This article advances the understanding of CSR in the economic model of the firm by outlining five basic preference orderings through which the goals and operations of business can be reoriented from a focus on efficiency and toward world betterment. The article suggests that the concept of the socially responsible business is not inconsistent with the economic model of the firm and that framing it within the model is possible. It identifies five separate causal models through which the goals and operations of business can be transformed. The re-directing of the firm from its economically construed role to a broader social role comes by re-framing and re-focusing of incentives of various actors — sometimes business managers, sometimes investors and sometimes consumers. In particular, it occurs by modifying our understanding of the concepts of the efficient businesses and efficient markets. This analysis enhances our ability to evaluate and operationalize the concept of the socially responsible business by understanding the forces that are leading this change and the prerequisites necessary to keep those forces in motion.

Keywords: CSR, Social Responsibility, Shareholder Primacy, Theory of the Firm, Corporate Models